Congress now needs to approve any borrowing past the $14.3 trillion debt ceiling, which the United States will reach “no later” than May 16, according to Treasury Secretary Timothy Geithner. If Congress doesn’t raise the debt ceiling, the government would have to stop spending—including stopping interest payments on those Treasury bonds, meaning that the United States would effectively default on its debt.

The debt ceiling has to be raised and everyone knows it. Surely the Republicans knew it when they voted for tax cuts for the rich with borrowed money. If the debt ceiling is not raised, the United States will default on some of its obligations. Just like what happens after you miss a credit card payment, the country’s creditors will demand higher interest in order to lend to us in the future.

Playing chicken with the debt ceiling is a recipe for increasing the national debt. Paul Waldman argues in The American Prospect that the Republicans hate government so much that they are willing to declare war on the economy in a quixotic bid to smash the state:

The reason we’re now seeing an unprecedented amount of attention paid to a vote that ordinarily passes with little notice is that the Republican Party’s agenda is being set by a group of ideological radicals who seem quite willing to cripple the American economy if that’s what it takes to strike a blow against the government they hate so much.

Peak Crazy

At AlterNet, Joshua Holland explains why failure to raise the debt ceiling would be an economic catastrophe that could jeopardize the economic recovery. “Peak Crazy,” he calls it.

However, Holland notes that a showdown over the debt ceiling does not risk an immediate government shutdown, like the one we faced over the budget battle. Borrowing isn’t the only way that government agencies are funded. The government could still spend the $150 billion or so it takes in every month in tax revenue, for example.

Yet, Senate Minority Leader Mitch McConnell (R-Kentucky) has announced that 47 GOP senators oppose raising the debt ceiling unless “credible attempts” are made to cut federal spending. Meanwhile the Tea Party is launching an all-out lobbying effort to urge House Republicans not to raise the debt ceiling without major spending cuts.

The Tea Party’s wish list includes some total pipe dreams like a balanced budget amendment to the constitution, and a law to require a two-thirds majority for all future tax increases. Former senator and current U.S. presidential hopeful Rick Santorum cheerfully announced that he would let the United States default on its debt if health care reform is not repealed. Rep. Michele Bachmann (R-Minn) helpfully suggests paying the interest on Treasury Bills using money that would otherwise go to Social Security.

Shoot the hostage

Cenk Uygur of the Young Turks argues that Democrats are panicking needlessly and, once again, offering needless preemptive concessions to the Republican fringe in the form of a proposed “hard cap” on government spending, which would cap new government spending, and subtract any overruns from social welfare programs like Medicare and Social Security.

The truth, Uygur notes, is that Wall Street has already told the Republicans in no uncertain terms that the debt ceiling will be raised. The economic consequences of doing anything else would be unthinkable. The Tea Party can yell and scream, but the adults have already made the decision. Knowing this, Democrats should not be trying to placate the Republicans so as to induce them to do something they will ultimately end up doing.

Digby on Social Security

Democrats are wavering in their decades-long commitment to defend Social Security, Heather Digby Parton (a.k.a., “Digby”) writes in In These Times:

In a quixotic attempt to fix the problems in the current economy without confronting the plutocrats, the Democrats are using the illogical argument that since Social Security is projected to have a shortfall in 35 years, we must cut benefits now. And they seek to prove to “the market” that the government is fiscally responsible by showing it’s willing to inflict pain on its citizens—in the future.

Even if we do nothing, Social Security can pay out full benefits for the next 35 years. There is no crisis. A small increase on the payroll cap on Social Security could shore up the program for generations to come. Republicans oppose Social Security because they are ideologically opposed to social welfare programs, not because Social Security is broken.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

The Republicans are poised to unveil a model budget on Tuesday that would effectively end Medicare by privatizing it, Steve Benen reports in the Washington Monthly. House Budget Committee Chair Paul Ryan (R-WI) is touting the budget as a strategy to reduce the national debt.

Ryan’s plan would turn Medicare from a single-payer system to a “premium support” system. “Premium support” is a euphemism for the government giving up to $15,000 per person, per year, to insurance companies to defray the cost of a health insurance policy.

As Benen points out, privatizing Medicare does nothing to contain health care costs. On the contrary, as insurance customers weary of double-digit premium increases can attest, private insurers have a miserable track record of containing costs. They excel at denying care and coverage, but that’s not the same thing.

The only way the government would save money under Ryan’s proposal is by paying a flat rate in vouchers. Medicare covers the full cost of medical treatments, but private insurers are typically much less generous. So, after paying into Medicare all their working lives, Americans currently 55 and younger would get vouchers for part of their health insurance and still have to pay out-of-pocket to approach the level of benefits that Medicare currently provides.

Taking aim at Medicaid

The poor are easy targets for Republican budget-slashing, Jamelle Bouie writes on TAPPED. Ryan’s proposal would also cut $1 trillion over the next 10 years from Medicaid, the joint federal-state health insurance program for the poor, by eliminating federal matching and providing all state funding through block grants. Most of this money would come from repealing the Affordable Care Act’s Medicaid expansion, which is slated to add 15 million people to Medicaid.

Block grants are cuts in disguise. Currently, Medicaid is an entitlement program, which means that states have to enroll everyone who is eligible, regardless of the state’s ability to pay. In return, the states get federal matching funds for each person in the program. Ryan and the Republicans want to change Medicaid into a block grant program where the federal government simply gives each state a lump sum to spend on Medicaid. The states want to use this new found “flexibility” to cut benefits, narrow eligibility criteria, and generally gut the program.

This is incredibly short-sighted. The current structure of Medicaid ensures extra federal funding for every new patient. So when unemployment rises and large numbers of new patients become eligible for Medicaid, the states get extra federal money for each of them. But with a block grant, the states would just have to stretch the existing block grants or find money from somewhere else in their budgets. Medicaid rolls surge during bad economic times, so a block grant system could make state budget crises even worse.

Ryan’s proposal has no chance of becoming law as long as Democrats control the Senate. The main purpose of the document is to lay out a platform for the 2012 elections.

Fake debt crisis

In The Nation, sociologist and activist Frances Fox Piven argues that the Republicans are hyping the debt threat to justify cuts to social programs:

Corporate America’s unprovoked assault on working people has been carried out by manufacturing a need for fiscal austerity. We are told that there is no more money for essential human services, for the care of children, or better public schools, or to help lower the cost of a college education. The fact is that big banks and large corporations are hoarding trillions in cash and using tax loopholes to bankrupt our communities.

She notes that Republican-backed tax cuts for the wealthy are a major contributor to the debt.

Jesus was a non-union carpenter?

Josh Harkinson of Mother Jones reports on the religious right’s crusade against unions. He notes that James Dobson of the socially conservative Family Research Council tweeted: “Pro-family voters should celebrate WI victory b/c public & private sector union bosses have marched lock-step w/liberal social agenda.”

Harkinson reports that the Family Research Council is backing the Republican incumbent, David Prosser, in today’s Wisconsin Supreme Court election–a battle that has become a proxy fight over Gov. Scott Walker’s anti-collective bargaining bill:

The FRC’s new political action committee, the Faith, Family, Freedom Fund, is airing ads on 34 Wisconsin radio stations in an effort to influence the April 5 judicial election that could ultimately decide the fate of the law. The ads target Wisconsin Assistant Attorney General JoAnne Kloppenburg, who’s running against a conservative incumbent, David Prosser, for a seat on the state Supreme Court. If elected, Kloppenburg would alter the balance on the court in favor of Democrats, giving them the ability to invalidate the recently enacted ban on public-employee collective bargaining. “Liberals see her as their best hope to advance their political agenda and strike down laws passed by a legislature and governor elected by the people,” say the ads. “A vote for Prosser is a vote to keep politics out of the Supreme Court.”

Roger Bybee of Working In These Times argues that recalling Republican state senators in Wisconsin is not enough to defend workers’ rights from Gov. Scott Walker’s anti-union onslaught.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

Fashionable pundits like to say that the Republican Party has shifted its focus from “social conservatism” (e.g., banning abortion, shoving gays back in the closet, teaching school children that humans and dinosaurs once walked the earth hand-in-claw) to fiscal conservatism (e.g., tax cuts for the rich, slashing social programs). But is that really true? Tim Murphy of Mother Jones argues that the old culture war issues never really went away. Rather, the Republicans have simply rephrased their social agenda in fiscal terms.

For example, Rep. Mike Pence (R-IN) is quite upfront about the fact that he hates Planned Parenthood because the group is the nation’s leading abortion provider. Yet, he seeks to de-fund the Planned Parenthood and the entire Title X Family Planning Program in the name of balancing the budget. Never mind that the federal money only goes toward birth control, not abortion, and research shows that every dollar spent on birth control saves $4 in Medicaid costs alone.

Steve Benen of the Washington Monthly surveys the current crop of GOP presidential hopefuls in Iowa and agrees that reports of the death of the culture war have been greatly exaggerated.

But the key takeaway here is that fiscal issues have largely been relegated to afterthought status. That’s just not what these right-wing activists — the ones who’ll largely dictate the outcome of the caucuses — are focused on. Indeed, even Ron Paul, after pandering to a home-school crowd last week, conceded, “I haven’t been asked too much about fiscal issues.”

Budget cuts

Sarah Babbage writes in TAPPED that Obama and the Democratic leadership in Congress seem poised to grant an additional $20 billion in spending cuts for FY 2011, in addition to the $10 billion in cuts they’ve already pledged for this fiscal year. Babbage notes that, after weeks of negotiations, we’re right back to the $30 billion in cuts the GOP initially demanded. She warns that these cuts will have a trivial impact on the $1.6 trillion deficit, but they could have a devastating effect on the fragile economy.

Taxes for thee, but not GE

General Electric raked in $14.2 billion in profits last year, $5.1 billion of which came from the United States, yet the company paid $0 in U.S. income tax, Tara Lohan notes in AlterNet. Despite its healthy bottom line, and its sweet tax situation, GE is asking 15,000 unionized U.S. workers to make major concessions at the bargaining table. GE wants union members to give up defined benefit pension programs in exchange for defined contribution programs.

As we discussed last week in The Audit, defined benefit plans guarantee that a retiree will get a set percentage of her working salary for the rest of her life; defined contribution plans pay the worker a share of the revenue from a pool of investments. As the fine print always says, investments can decrease in value. So, if the stock market crashes the day before you retire, you’re out of luck.

Generation Debt

Higher education is supposed to be a stepping stone to a better standard of living, but with unemployment hovering around 10%, many college graduates are struggling to find jobs to pay their student loans. Aliya Karim argues in Campus Progress that the government should compel colleges and universities to be more transparent about the realities of student loan debt:

The government should require colleges to provide information about graduation rates, college costs, and financial aid packages on college websites, enrollment forms, and guidebooks. This information should be easy to find and understand. Without such information available to them, students may not be aware that their future college has a graduation rate lower than 20 percent or that its graduates face close to $30,000 in debt.

The government has a lot of leverage over public and private schools because so much student debt is guaranteed by taxpayers. Greater transparency will enable students to make more informed choices, and give colleges with low graduation rates a greater incentive to clean up their act.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

The most influential business lobby group in the United States has been linked to a scheme to deploy dirty tricks against its political opponents. Josh Harkinson reports for Mother Jones that prospective vendors for the Chamber of Commerce hatched a plan to frame and entrap critics of the Chamber.

The plan came to light last week after hackers released thousands of emails obtained from the servers of HBGary Federal, a private security company. The emails reveal Chamber law firm Hunton & Williams was looking for firms to help it execute a plot to entrap bloggers, union officials and other Chamber critics. The goal, according to Harkinson, was to manufacture evidence that all the Chamber’s critics were working together to discredit the business group:

According to the emails, Chamber law firm Hunton & Williams wanted to hire digital sleuths that could demonstrate that the business group’s opponents had been working as a “single entity instead of a true ‘grasroots’ campaign.” That phrase and others suggest that the Chamber’s ultimate goal was to openly accuse its foes of a left-wing form of astroturfing.

HBGary Federal was apparently planning to pitch its services as a “Corporate Information Renaissance Cell” to the Chamber yesterday. The emails show that HBGary Federal and two other firms, Berico Technologies and Palantir, proposed to use the social networking pages of the Chamber’s enemies to manufacture evidence of supposed “relationships” between various players.

Labor of love

Robert Kuttner suggests in The American Prospect that organized labor may be the last best hope for reviving the middle class and restoring shared prosperity:

Kuttner notes that the average union employee earns about 20% more than a non-unionized worker doing the same job. He also cites evidence that unionized workers are more likely to vote for Democrats than their non-unionized counterparts and that the power of unions to deliver votes for Democrats had been growing steadily up until the Republican blowout in the midterm elections of 2010.

Budget bingo

Ari Berman of The Nation takes a closer look at President Obama’s proposed federal budget for 2012. The budget calls for investments in high speed rail and a national infrastructure bank. It does not tinker with Medicare or Social Security. The cuts proposed in the budget barely offset the cost of continuing the Bush tax cuts for the wealthy, Berman notes.

Meanwhile, David Corn of Mother Jones examines the president’s budget and feels deja vu from the Clinton administration. At a recent press conference, White House budget director Jared Lew outlined a budget that attempts to save money while”winning the future.” Obama’s budget promises $1.1 trillion in savings over the next decade, while maintaining investments in future-oriented research and development projects.

Corn notes that the administration is calling for $2.5 billion in cuts to a home heating program (LIHEAP) for the poor and elderly while simultaneously planning a national broadband network. But the administration has more or less given up on immediate job-creation in favor of long-term investment, Corn argues:

It seems the administration has concluded that after that tax-cut deal—which did amount to something of a second stimulus—there is not much else the White House can do via government spending (or tax cuts) to create jobs, especially with Republicans controlling the House.

That sounds good on paper, but how much are these ambitious big ticket projects going to do for Americans who are struggling in the current recession? He thinks it all sounds a lot like former president Bill Clinton’s centrist approach to the budget.

Consumers Anonymous

Carrie Barker of Ms. Magazine interviews CNN host Jane Velez-Mitchell about her new book Addict Nation, a book about American consumerism as a form of mass addiction. As a recovering alcoholic with 16 years of sobriety, Velez-Mitchell says she began to see connections between her personal struggles and the larger cultural script that “more is better.” She argues that our society needs a “consumer revolution” that will prompt people to rethink their buying patterns as conscious social and moral choices, as opposed to reflexive self-gratification.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

A proposed program to cover counseling sessions for seniors on end-of-life care has risen from the ashes of health care reform and found a new life in Medicare regulations, Jason Hancock of the American Independent reports.

In August, former Alaska governor Sarah Palin started a rumor via her Facebook page that the the Obama administration was backing “death panels” that would vote on whether the elderly and infirm had a right to live. In reality, the goal was to have Medicare reimburse doctors for teaching patients how to set up their own advance directives that reflect their wishes on end-of-life care.

Patients can use their advance directives to stipulate their wishes for treatment in the event that they are too sick to make decisions for themselves. They can also use those directives to demand the most aggressive lifesaving interventions. (more…)

The GOP abruptly pulled the plug on the omnibus, a massive piece of legislation that Republicans and Democrats had collaborated on for months. Why? Because the Republicans want to start over in the next session of Congress when they will control the House and pick up seats in the Senate. They intend to rewrite the spending bill with much less Democratic input. In other words, bipartisanship proves once again to be a racket.

War on the welfare state

At Truthout, economist Dean Baker offers some predictions on what Republicans have in mind for the 112th Congress. The Bush tax cut extensions that passed with great fanfare are supposed to be 2-year extensions. However, Baker asks why we should expect that the GOP will allow the tax cuts to expire? (more…)

The deficit commission released its much anticipated list of helpful money-saving tips for the federal government last week. These tips include tax cuts for the rich, reducing unnecessary printing costs, and cutting the jobs of federal contractors.

The recommendations are more like a menu than a program. As Mark Schmitt of The American Prospect notes, there’s no coherent vision, just a list of possible tax increases and program cuts with projected savings attached.

The commission was dubbed the Cat Food Commission by critics who see the project as an attempt by the Obama administration to provide political cover to gut Social Security, thereby forcing the elderly to subsist on cat food.

Officially, the commission is charged with making suggestions to balance the budget by 2015. Kevin Drum of Mother Jones is surprised at the hype thepresentation has attracted, considering that it’s not a piece of legislation, or even proposed legislation, or even the actual report by the deficit commission, but rather a draft presentation by “two guys in a room” (co-chairs former Sen. Alan Simpson (R-WY) and Erskine Bowles). (more…)

Last week, the Federal Reserve announced a plan to buy an additional $600 billion worth of Treasury bonds in an attempt to stimulate the economy. On Democracy Now!, economist Michael Hudson argues that the $600 billion T-bill buy will help Wall Street at the expense of ordinary Americans.

The Fed justifies the purchase as an infusion of cash into the U.S. economy. The buy-up will certainly be an infusion of cash into U.S. banks. In effect, the Fed will help the government pay back the banks that lent money to finance deficit spending. The hope is that these banks, suddenly flush with cash, will help the U.S. economy by lending money to finance projects that will create wealth and jobs (i.e. opening factories and hiring more workers).

However, as Hudson points out, there’s no guarantee that the banks are going to use the windfall to build wealth in the U.S. On the contrary, he argues, there’s every reason to suspect that they’ll invest the money overseas in currency speculation deals. Why? Because the Fed has also put massive pressure on Congress to push China into raising its currency by 20%. The banks know this because the House voted overwhelmingly to approve such a threat in September.

If the banks convert their extra billions to Chinese currency, and China raises the value of its currency in response to the threat of an across-the-board U.S. tariff on its imports, then banks that bought Chinese RMB when it was still artificially cheap will reap huge profits overnight. (more…)

Last week, Social Security advocates learned something they had long suspected. Arguments for cutting Social Security aren’t really about economics or the deficit. They’re all about waging war on social services.

In short, some very prominent policymakers are out to dismantle Social Security on ideological grounds. The most recent example of this view comes from Alan Simpson, a former Republican Senator from Wyoming who now serves as co-Chair of President Barack Obama’s Federal Debt Commission. Earlier this summer, Simpson was caught on video spreading absurd lies about Social Security, but his latest outburst explains why he’s been so willing to distort the facts. Simpson simply hates Social Security.

As Joshua Holland highlights for AlterNet, Simpson fired off a nasty email to Ashley Carson, who advocates for elderly women, in which he referred to the most successful social program in U.S. history as “a milk cow with 310 million tits.” (more…)

The crazy conservative assault on government spending has become one of the most irrational economic policy debates in recent years.

The Republican Party is trying to maintain the fiction that direct economic relief for millions of working Americans is a fiscally irresponsible splurge, while simultaneously backing hundreds of billions of dollars worth of economically useless tax cuts for the wealthy. The demands are staggering: cut food stamps for the poor, but preserve perks for billionaires.

As Tim Fernholz notes for The American Prospect, serious economists do not believe that President George W. Bush’s tax cuts for the rich are an effective way to stimulate the economy. Rich people don’t spend money, they save it. We need lots of consumer spending to reinvigorate economic growth and put people back to work.

If we want to create jobs, we need to put money in the hands of people who will spend it. At minimum, that means directing aid to the unemployed and providing federal assistance to states, so that local governments don’t lay off hundreds of thousands of teachers and cops. This is not only the decent, humane thing to do when the economy is struggling, it actually helps. Money the government spends to save a teacher’s job goes out into the economy to pay bills and buy products. For states, this also means that basic public infrastructure is preserved—kids learn and the streets stay safe.

Stonewalling aid

But as the editors of The Nation highlight, Republican politicians have made it nearly impossible to get that critical aid out to American families. They’ve demanded strict measures for these benefits, forcing Democrats to cut food stamps—that’s right, food stamps—in order to keep teachers in school and cops on the street.

Millions of families all over the country depend on food stamps. In the middle of the worst recession since the Great Depression, Republican politicians took a stand to take food from the mouths of children—and they did it while supporting a $300 billion a year in handouts for the rich.

There is no immediate budget crisis. The government can borrow money at record low interest rates, meaning that investors don’t believe the federal budget deficit is too big. But if conservatives were really serious about shrinking the deficit, they’d be encouraging economic growth, not backing billionaire giveaways.

The Community Reinvestment Act of 1977 (CRA) required banks to make good loans to credit-worthy borrowers in the bank’s community. The idea was simple: If a bank wants to benefit from a community’s resources, it has to give something back and help strengthen the local economy.

Conservatives have lashed out at CRA, blaming it for the mortgage crisis, but the truth is that CRA loans had almost nothing to do with the subprime disaster. CRA loans are affordable loans to creditworthy borrowers—the whole point of subprime lending was to charge outrageously high rates to borrowers with poor credit.

In reality, policymakers’ refusal to expand CRA exacerbated the crisis. Only traditional banks are subject to CRA guidelines, and during the past two decades a host of independent mortgage companies have taken over large swaths of the mortgage market. These unregulated firms issued a lot of lousy loans, often working under direct, explicit instructions from bigger banks, who outsourced their lending in order to get around CRA rules and rip off whole neighborhoods.

Lending is critical to moving the economy out of the recession, and CRA provides reliable, proven rules to get banks back in the business of helping our communities and our economy.

Overdrafting the banks

But a host of other banking policies are also making the recession worse. One of the most egregious is the overdraft fee, which, as Annie Lowrey notes for The Washington Independent, scored banks over $38 billion in 2009 alone. To put that in perspective, the entire banking industry earned a combined profit of $12.5 billion last year, which means that the banks are making their money from gotcha fees, not from productive lending.

Banks have spent years charging overdraft fees without telling their customers that they’re subject to such gouging. Lowrey notes that the average fee is $35 on an average charge of $17. But they also have engaged in a backdating scam, rearranging the order of their customers’ purchases in order to charge more overdraft fees. As I explain for AlterNet:

“Say you’ve got $80 in your checking account, and you decide to pay some bills and run some errands. You spend $30 on gas and another $20 on your water bill. Later, you head to the grocery store and spend $81—oops!—on groceries. To reasonable people, it looks like you’re going to get hit with an overdraft fee. That last purchase put you over the line. But instead, the banks reorder your transactions, processing the groceries first. Now you’re below zero, and they can charge additional fees for your gas and water bills. Wells Fargo charged up to $39 per overdraft. This one mistake cost you $117, and nobody even bothered to tell you it was going to happen.”

Fortunately, a federal judge in California just ruled that this backdating scam was grossly illegal, and ordered megabank Wells Fargo to pay back every penny that it swindled from its California customers with the practice since 2004. But Wells Fargo was not alone—every large bank in the United States does the exact same thing, and it’s allowed them to score billions in deceptive profits. A similar ruling in a larger case against all of the big banks could end a transparent outrage, and restore an enormous amount of unfairly seized wealth to citizens all over the country.

We don’t need to be pushing policies that benefit billionaires at the expense of everyone else. The Bush tax cuts are an unnecessary economic waste. Financial policy that puts the interests of a few giant predatory banks above those of the entire citizenry makes no economic sense.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.